Best Practices in Launching Your Own Token
March 14, 2023
9 min read
As blockchain technology revolutionizes various industries, launching tokens has become increasingly popular. However, launching a new digital asset on your own blockchain can be daunting, especially for those new to the space with a sizeable list of requirements to consider. This article chronicles the best practices for releasing a new token with tips to simplify the process from Ankr, with lessons from our successful token launch and our crucial role in launching many others.
Defining Strong Utility, Tokenomics & Attributes
Since its 2017 launch, the ANKR token has been listed on over 30 exchanges, and the team has helped launch and list several tokens for partner projects. Our team at Ankr has a wealth of experience in Web3 and the traditional financial sector from some of the world's largest banking and financial firms. With this expertise, we guide clients with the knowledge of what will work best based on their unique use cases.
Token Purpose (Utility)
Defining the purpose of your token is critical, as its value proposition and use cases will drive demand and adoption. Whether you're building on an L1, L2, or application-specific blockchain (AppChain), be mindful of how you create your token's functionality within your blockchain ecosystem. Consider what problems your token solves within a specific industry and what benefits it will offer its users.
Design your token to provide access to core features or services within your dApp. For instance, the token can enable access to vote in governance, pay for transactions, and unlock premium content or additional functionalities. It is possible to extend the utility of your token to multiple blockchains and platforms. We recommend this strategy as it ensures your token meets common standards such as ERC-20, BEP-2, and others where applicable. Also, consider rewarding users for participating in your ecosystem. Staking rewards, referral bonuses, or airdrops contribute to a quality token purpose. With a clear understanding of your token's purpose and how it benefits users, you will be in the best position for a successful token launch.
Breakdown of token utility best practices:
- Make your token necessary to access core features or services within your dApp
- Incentivize and reward users for participating in your ecosystem where possible
- Extend your token's utility beyond one chain to numerous blockchain ecosystems
Think of your token as the currency of your small new island nation. The economic model of your token must match your country's overall goals and business objectives and provide a functioning system of commerce and exchange for your citizens. By thinking as if you're running the country's central bank, with your new token as its currency, you can work backward to determine your desired outcomes.
As a "central bank," you must supply your citizens with a currency. You must consider the token's total supply, distribution, inflation, and deflation mechanisms. Suppose the price of your token needs to be stable or even on a "gold standard." In that case, we recommend pegging it to an asset like BTC or USD through collateralization or other methods. Or does your token need to rise in value to attract more holders? If so, it's best for you to decrease the supply with mechanisms such as locking or burning.
Your tokenomics needs a quality strategy that matches your business goals. This strategy includes a token supply based on your token's utility and early adopters vesting tokens for a certain period to align their interests. In addition to an excellent system, the token needs to enhance the product experience in a role that is critical to all operations to ensure long-term value.
As mentioned, while building your token you want to act as the central bank with a thriving economy. With a strong economy, there will be increased demand for your token (think of shifting exchange rates for currencies between countries)with many consumers and high adoption. There are several ways you can boost demand for your token, such as offering rewards schemes like:
- Cashback in your token for every trade completed, similar to a possible exchange use case. However, the tx fee for this swap will still generate revenue for your project. Rewards schemes will incentivize early adopters to use the core features of your product while increasing revenue sources for the protocol. It also improves what traditional economies call the "money velocity," or the frequency at which one currency unit is exchanged for goods and services within a given time. A high money velocity often tells the story of a healthy, active, and expanding economy (translating to on-chain activity in the digital economy). A higher number of transactions nearly always paints the picture of a thriving crypto ecosystem.
- Mechanisms to lock and stake your token are complemented with high initial incentives to attract new users. As the protocol gains traction, you can lessen the "cashback" to reduce token inflation/dilution, but in the process, you will attract many users that will like the product and convert to long-term clients.
- Consider mechanisms for deflation with a fixed total supply and a burn schedule that destroys a certain percentage of tokens with each transaction. Deflation can help maintain scarcity and increase demand for your token. Alternatively, you can create a token with a dynamic supply that adjusts based on market demand. A token whose supply can change over time helps stabilize the token's value and prevent excessive inflation or deflation.
Tokenomics best practices breakdown:
- Token's economic model must match the long-term goals and objectives of your dApp
- Consider pegging the token to another asset if you require price stability
- Implement mechanisms like cashback, locking, staking, and other incentives to improve demand
- Create a dynamic supply to maintain scarcity or prevent or enhance inflation/deflation
- Staking and rewards programs can incentivize adoption and community engagement
Choose the consensus mechanism that will be used to validate transactions on your network. If you build with Ankr AppChains, you can select from mother chains, such as Polygon Supernets and Binance Sidechains, that allow for multiple consensus mechanisms, such as Proof-of-Stake (PoS) and Delegated Proof-of-Stake (DPoS).
You won't have this range of options when building on existing public L-1s or L-2s, as you will be limited to their existing consensus framework. The consensus mechanism will play a crucial role in determining the tokenomics of your blockchain, as it will affect transaction fees, and staking or mining rewards, and governance models at the base level.
Interoperability is a crucial factor to consider when launching your token on an Ankr AppChain. By making your token interoperable with other networks, you can increase the usability and reach of your token, as well as open up new opportunities for collaboration and innovation. It is to your benefit if consumers on the various applications of Ethereum, Polygon, Avalanche, and other ecosystems can use your digital assets and put them to use. This interoperability will expand your TVL in the same way that projects like Maker DAO have done with DAI – rocketing their cross-chain TVL upwards of $7 billion.
If you're building on Ankr AppChains, the Chainscanner bridge powered by BridgeHub provides interoperability solutions. When designing your token and AppChain, it's essential to consider how it will fit into the existing blockchain ecosystem you choose to build your AppChain on (Binance, Avalanche, Polygon). One way to achieve interoperability is by implementing token standards such as ERC-20 or ERC-721, which provide easy integration with other blockchains. Ankr can customize your token to match either standard. Whichever solution you choose, it's vital to prioritize compatibility and ease of integration to maximize the potential of your token.
Effective governance ensures your community is engaged and empowered to make important decisions about your dApp’s future. You must consider several key factors:
- Governance structure: This can include traditional democratic voting, delegated voting, quadratic voting, and futarchy. Each system has its strengths and weaknesses, and you must choose the one that aligns with your token and business goals. You will also need to determine your tokens distribution model, and how you will allocate the voting power.
- Proposal structure: This system includes who can submit proposals, how they are reviewed/approved, and how the voting process works.
- Voting Mechanism: This will determine whether your governance uses on-chain or off-chain voting. On-chain voting can provide transparency to the voting process, but can be slower and more expensive. Off-chain voting systems can be faster and cheaper but may be less secure and transparent. New dApps with a smaller user base should use a simple voting system with lower participation requirements to quickly grow their community. A project with complex governance requirements, such DAO, should use an on-chain voting system that provides increased security and transparency.
Effective governance is essential to a successful token launch and can help ensure your project's long-term success. Regardless of what type of project you are building, engaging and fostering a positive community culture is vital to ensure transparency and accountability in the decision-making process.
Listing Tokens Successfully On Major Exchanges
Getting a token listed on credible exchanges is what many projects put as a top priority because they are aware of how much it affects their success and adoption. Token listings increase visibility, liquidity, and credibility. Although Ankr cannot guarantee token listings, we can help you prepare for meetings with credible exchanges to list your token while ensuring you’ve checked off and accounted for every essential item they look for in their due diligence. Many exchanges require their projects to meet minimum requirements, including the following:
- Use Case / Innovation: Exchanges will look at your underlying blockchain technology to ensure it's secure, scalable, and efficient. They will also consider your transaction speeds, block sizes, and consensus mechanisms.
- Team Efficiency: Exchanges will consider your leadership development team, management team, and advisors to assess your experience, credibility, and track record.
- Community: A strong community is critical to launching your token and putting yourself in the best position to get your token listed. Exchanges will consider your community's size, engagement, and activity, including your UWA, daily transactions, social media presence, customer base, and online forums.
- Market demand: A strong token need is crucial to business success and being listed. Credible exchanges want to see high market demand for your token. Increased demand includes large trading volumes, high liquidity, and expanding price history on other exchanges. Initially, demand will likely stem from decentralized exchanges before moving to other exchange listings.
- High Liquidity: Liquidity is an essential part of getting your token listed. Exchanges require a minimum level of liquidity for tokens (that is not public), but they do this to reduce the number of tokens they have that contribute to volatility and market manipulation.
- Go-to-Market Strategy: Overall plan and strategy to launch the token/protocol/product, marketing approach/campaigns, how you will bring adoption, current partnerships, etc.
It's important to note that the token listing process can be competitive, and there's no guarantee that your token will be listed on an exchange. However, by following these steps and working to build a strong, reputable project, you can increase your chances of success and attract interest from reputable exchanges.
Launching digital assets is crucial for new projects as blockchain technology gains popularity. However, launching a token on one's own blockchain can be challenging, requiring informed decisions. Luckily, Ankr's AppChain team offers expert guidance for launching tokens and best practices, drawing from years of experience in TradFi, DeFi, exchange negotiations, and more. With AppChain's support, launching tokens can be simplified and expedited while following all best practices for success.